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Five years after the financial crisis, Canada’s recovery remains mixed
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Five years ago this week, Lehman Brothers collapsed, sparking a global financial crisis and a seven-month recession in Canada. A half decade of healing the economic wounds have shown mixed results; the patient is on its feet, but in places, scars remain.

Some aspects of the economy recovered more quickly than seemed possible in those tumultuous autumn days of 2008 – retail spending, for example, took only a short dive before bouncing back as low borrowing costs gave consumers the confidence to spend. Other measures, such as exports and Canada’s jobless rate, have been slower to recuperate.

A worker rests his head on his accountant bag on a bench in the financial district in New York. When one of Wall Street’s largest investment banks, Lehman Brothers Holdings Inc., went under, the biggest global financial crisis since the Great Depression was on.
for The Globe and Mail

Financial Crisis

The drop in retail sales was remarkably short-lived, and firm consumer spending is one of the reasons Canada was spared a deeper recession. By May and June of this year, monthly sales had climbed above the $40-billion mark, compared with about $33-billion in late 2008. In the past year, sales have risen the most in Alberta; by industry, they’ve grown at new-car dealerships, drug tores and specialty food stores. Most economists see slower growth in the coming year, as consumers focus on whittling down debt loads.

Jobless rate

The Canadian economy has been adding jobs since the recession, but not enough to return the country’s unemployment rate to pre-downturn levels. The jobless rate was running at 6.1 per cent in October, 2008, until employers shifted into cost-cutting mode. The rate rose as high as 8.7 per cent by August, 2009. It has since subsided, with the current rate of 7.1 per cent similar to what it has been throughout this year. Five years ago, 1.11 million Canadians were out of work; today that number is 1.36 million.

Job creation

Employment fell sharply in the downturn, as companies quickly cut staff to cope with weaker demand. By 2011, however, employment levels had largely recovered, unlike other industrial countries, and job growth has been fairly steady in the past three years. Canada has added 246,000 jobs in the past year, with gains in the private sector and among the self-employed.

Manufacturing

Factory sales remain below their pre-recession peaks in both current- and constant-dollar terms, amid choppy global demand and a strong currency. They have shown some strength lately, rising in two of the past three months. Still, manufacturing as a share of total employment in Canada has fallen, to 9.8 per cent last year from 12 per cent before the recession.

Inflation

Inflation subsided in the downturn and hasn’t really come back since. Canada’s consumer price index was running above 3 per cent through much of 2008 – until the recession hit, employers laid off staff, commodity prices tumbled and business activity sagged. Inflation ran into negative territory in 2009 and stayed below 2.4 per cent through 2010. It picked up a little the following year, but has stayed below the 2-per-cent mark since April of last year.

Exports

Exports have also not returned to pre-recession peaks, amid a rockier global economic environment. The Bank of Canada has been counting on exports and business investment to propel the economy this year, as domestic demand slows. Export growth has been sluggish in the past year, although some economists expect a pickup in the coming months as demand grows in the United States, Canada’s largest trading partner.

House prices

House prices had soared before the recession, only to buckle in the 2008-09 slowdown. But the decline didn’t last long, with steady increases since 2010. In the past five years, prices have risen the most in Toronto, followed by Regina and Ottawa, according to the Canadian Real Estate Association’s home price index. Prices are 8.1 per cent higher than a year ago, with an average price of $378,369. Activity, too, has ramped up, with August home sales running at above their 10-year average.

Household debt

The slowdown did little to alter debt accumulation, which is running at record highs as Canadians bought ever-pricier homes, took out mortgages and renovated. Household credit market debt relative to disposable income hit a record 163.4 per cent in the second quarter of this year, according to Statistics Canada data released last week. That ratio was 144.7 per cent in the second quarter of 2008 – and 85 per cent back in 1990. Debt may be climbing, but so too is net worth, fuelled by gains in the real estate sector. Canadian households’ debt-to-net-worth ratio stood at 24.1 per cent in the second quarter, down from a peak of 25 per cent in mid-2009, but up from 21.4 per cent in mid-2008 and 22 per cent in 1990.

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